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5 Things You Need to Know About Your Student Loans

If student loans have you stressed out and confused, you are not alone. The average college graduate has $28,950 in student loan debt. Prioritizing student loan payments, contributing to your 401-K and building up your savings all the while trying to have some fun is the new norm. After working with many clients to come up with plans to tackle their student loans, I’ve found that some very important pieces of information are less readily known and advertised. Here are five things you need to know about your student loans.

You can negotiate your interest rate.
We often think that the interest rate on our loans is something we’re stuck with. Not necessarily. Many people have luck negotiating their rates down! Why is this important? When you reduce your interest rate, more of your hard-earned money can go towards paying down the loan’s principal versus interest. You will pay off your loan faster and decrease the overall amount you are paying to the lender. Lenders are often more likely to negotiate rates with reliable borrowers. If you always make your payments on time or are willing to set up automated payments, the lender might be willing to give you a decreased rate. Practice those negotiations skills and don’t give up after you hear no once. There are plenty more people you can talk to!

Interest accrues when you stop payment.
You can temporarily postpone or reduce loan payments via a deferment or forbearance. Not having to make your loan payments might sound pretty great but with the exception of deferring subsidized federal loans, you will continue to be charged interest during that period. That means your loan will actually grow at the interest rate while you are deferring payments.

Your extra payment might go toward future payments, not principal.
If you are excited and ready to pay extra toward your student loan, it’s important to confirm that the extra money will go towards paying down principal. Many times, extra payments go toward funding future payments, rather than paying down principal and reducing the amount of interest you will be paying going forward. Don’t be afraid to call up the lender to confirm!

Refinancing may or may not be worth it.
I’m often asked if I recommend that people refinance their student loans. It all comes down to the numbers. Sometimes it’s worth it and others it doesn’t make sense. Some things to consider are the fees involved in refinancing, the difference in total interest you will pay over the course of the loan as well as your monthly payments.

There are forgiveness programs available.
There are various types of student loan forgiveness programs. Teachers in low-income elementary or secondary school or in an educational service agency may be eligible to have up to $17,500 in loans forgiven. People in certain public service positions can have their loans forgiven after 120 payments. There are also programs available for those who become disabled, file for bankruptcy or if your school falsified your eligibility.